BILL NUMBER: AB 964	CHAPTERED  10/10/99

	CHAPTER   715
	FILED WITH SECRETARY OF STATE   OCTOBER 10, 1999
	APPROVED BY GOVERNOR   OCTOBER 6, 1999
	PASSED THE ASSEMBLY   SEPTEMBER 3, 1999
	PASSED THE SENATE   SEPTEMBER 2, 1999
	AMENDED IN SENATE   AUGUST 23, 1999
	AMENDED IN SENATE   JULY 13, 1999
	AMENDED IN SENATE   JUNE 28, 1999
	AMENDED IN ASSEMBLY   APRIL 27, 1999
	AMENDED IN ASSEMBLY   APRIL 14, 1999

INTRODUCED BY   Assembly Member Aroner
   (Coauthor:  Assembly Member Torlakson)

                        FEBRUARY 25, 1999

   An act to amend Sections 10089.39 and 10089.40 of, and to amend,
repeal, and add Section 10089.27 of, the Insurance Code, relating to
earthquake insurance.



	LEGISLATIVE COUNSEL'S DIGEST


   AB 964, Aroner.  Earthquake insurance.
   (1) Existing law governing the California Earthquake Authority
prohibits an insurer from participating in the authority unless every
insurer affiliated with that insurer, as defined, or under common
control with that insurer, as defined, also participates in the
authority.
   This bill would provide, until January 1, 2004, that if a person,
directly or indirectly, owns, controls, holds with the power to vote,
or holds proxies representing less than 33% of the voting securities
of an insurer that writes earthquake insurance, but does not write
homeowners or dwelling fire insurance in the state, and the insurer
became part of an affiliated group which includes one or more
participating insurers as a result of an acquisition or merger which
occurred after the effective date of the provisions governing the
authority, then the insurer is not required to participate in the
authority even though an insurer affiliated with it or under common
control with it does participate in the authority, provided the
insurer does not transact residential earthquake insurance business
with agents exclusively appointed or employed by the participating
insurer.  This bill would impose reporting requirements on the
exempted insurer and the Insurance Commissioner related to this
exemption.
   (2) Existing law establishes the Earthquake Loss Mitigation Fund,
which may be used to supply grants and loans or loan guarantees to
dwelling owners who wish to retrofit their homes to protect against
earthquake damage.  Existing law requires the operational rules of
that fund to be a part of the authority's plan of operations.
   This bill would require the authority, on or before July 1, 2000,
to establish in the operational rules of the Earthquake Loss
Mitigation Fund, a plan for the expedited expansion of the
residential retrofit program statewide, as specified.
   (3) Existing law provides a premium discount or credit, as
specified, to policyholders of authority-issued policies of
residential earthquake coverage who have retrofitted their homes to
withstand earthquake shake damage, as specified.
   This bill would require the authority, on or before July 1, 2000,
to issue a report to the Legislature on the status of the Earthquake
Loss Mitigation Fund, the residential retrofit program, and the
application of the retrofit premium discount or credit, as specified.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:


  SECTION 1.  Section 10089.27 of the Insurance Code is amended to
read:
   10089.27.  (a) Every participating insurer that has inforce
residential earthquake insurance policies in the state as of the date
of commencement of authority operations shall renew each inforce
residential earthquake insurance policy or earthquake coverage
provided by endorsement into the authority at the time the policy or
endorsement comes up for renewal.  The effective date of each policy
renewal into the authority shall be the renewal date of the policy as
recorded in the records of the insurer and disclosed to the
policyholder.  The risk of loss under the insurance policy does not
transfer to the authority until 12:01 a.m. of the policy renewal
date.
   (b) (1) All policies of residential earthquake insurance written
by any participating insurer shall have been renewed into the
authority within one year of the commencement of operations of the
authority or the date an insurer elects to participate in the
authority, whichever is later, and after that date, no participating
insurer shall be permitted to write a policy of insurance that
provides coverage within the terms and limits of a policy of basic
residential earthquake insurance for any qualifying residential
property in the state.  Participating insurers may sell residential
earthquake insurance products that supplement or augment the basic
residential earthquake insurance provided by the authority.
   (2) Upon application to the authority demonstrating good cause and
approval of the commissioner, a participating insurer may take up to
60 days beyond that one-year period to complete its renewal of
earthquake policies into the authority.  No extension of time to
complete earthquake policy renewals into the authority shall serve to
extend the due date by which an insurer is to make its initial
capital contribution, as set forth in Section 10089.15.  The
commissioner shall not approve any extension if the effect of the
extension would allow an insurer to selectively transfer earthquake
policies with high risks to the authority while retaining policies
with lower risks during that interim period.
   (3) After policies of residential earthquake insurance are renewed
in the authority, insurers shall have no responsibilities or
liabilities regarding those policies for losses incurred after the
date of renewal of those policies, except for duties and
responsibilities to the authority and policyholders under the terms
of this chapter.
   (4) No insurer may participate in the authority unless every
insurer affiliated with that insurer (as defined in subdivision (a)
of Section 1215) or under common control with that insurer (as
defined in subdivision (b) of Section 1215) also participates in the
authority.
   (5) If a person, directly or indirectly, owns, controls, holds
with the power to vote, or holds proxies representing less than 33
percent of the voting securities of an insurer that writes earthquake
insurance, but does not write homeowners or dwelling fire insurance
in the state, and the insurer became part of an affiliated group
which includes one or more participating insurers as a result of an
acquisition or merger which occurred after the effective date of this
chapter, notwithstanding paragraph (4), the insurer is not required
to participate in the authority even though an insurer affiliated
with it or under common control with it does participate in the
authority, provided the insurer does not transact residential
earthquake insurance business with agents exclusively appointed or
employed by the participating insurer.
   (6) On or after October 1, 2002, but before January 1, 2003, each
insurer exempted from participation in the authority by paragraph (5)
shall report to the commissioner and the Legislature on the number
of residential earthquake insurance policies written by that insurer
where a participating insurer affiliated or under common control with
that insurer has written the policies of residential property
insurance on the same residential properties, the geographic
distribution of those residential properties, and the percentage of
that insurer's total residential earthquake insurance business
represented by those policies.  The commissioner shall compare the
information received from each insurer exempt pursuant to paragraph
(5), with the number and geographic distribution of residential
earthquake insurance policies placed with the authority where the
participating affiliated insurer has written the policy of
residential property insurance.  The commissioner shall report this
data to the Legislature, together with a determination of whether or
not there has been material adverse selection.
   (c) This section shall become inoperative on January 1, 2004, and
as of that date is repealed, unless a later enacted statute, that is
enacted before that date, deletes or extends that date.
  SEC. 1.5.  Section 10089.27 is added to the Insurance Code, to
read:
   10089.27.  (a) Every participating insurer that has in-force
residential earthquake insurance policies in the state as of the date
of commencement of authority operations shall renew each in-force
residential earthquake insurance policy or earthquake coverage
provided by endorsement into the authority at the time the policy or
endorsement comes up for renewal.  The effective date of each policy
renewal into the authority shall be the renewal date of the policy as
recorded in the records of the insurer and disclosed to the
policyholder.  The risk of loss under the insurance policy does not
transfer to the authority until 12:01 a.m. of the policy renewal
date.
   (b) (1) All policies of residential earthquake insurance written
by any participating insurer shall have been renewed into the
authority within one year of the commencement of operations of the
authority or the date an insurer elects to participate in the
authority, whichever is later, and after that date, no participating
insurer shall be permitted to write a policy of insurance that
provides coverage within the terms and limits of a policy of basic
residential earthquake insurance for any qualifying residential
property in the state.  Participating insurers may sell residential
earthquake insurance products that supplement or augment the basic
residential earthquake insurance provided by the authority.
   (2) Upon application to the authority demonstrating good cause and
approval of the commissioner, a participating insurer may take up to
60 days beyond that one-year period to complete its renewal of
earthquake policies into the authority.  No extension of time to
complete earthquake policy renewals into the authority shall serve to
extend the due date by which an insurer is to make its initial
capital contribution, as set forth in Section 10089.15.  The
commissioner shall not approve any extension if the effect of the
extension would allow an insurer to selectively transfer earthquake
policies with high risks to the authority while retaining policies
with lower risks during that interim period.
   (3) After policies of residential earthquake insurance are renewed
in the authority, insurers shall have no responsibilities or
liabilities regarding those policies for losses incurred after the
date of renewal of those policies, except for duties and
responsibilities to the authority and policyholders under the terms
of this chapter.
   (4) No insurer may participate in the authority unless every
insurer affiliated with that insurer (as defined in subdivision (a)
of Section 1215) or under common control with that insurer (as
defined in subdivision (b) of Section 1215) also participates in the
authority.
   (c) This section shall become operative on January 1, 2004.
  SEC. 2.  Section 10089.39 of the Insurance Code is amended to read:

   10089.39.  (a) The operational rules of the Earthquake Loss
Mitigation Fund shall be part of the authority's plan of operations.

   (b) On or before July 1, 2000, the authority shall establish in
the operational rules of the Earthquake Loss Mitigation Fund, a plan
for the expedited expansion of the residential retrofit program
statewide.  The program shall include personnel and administrative
requirements and all other programmatic specifications necessary to
the implementation of the plan.
  SEC. 3.  Section 10089.40 of the Insurance Code is amended to read:

   10089.40.  (a) Rates established by the authority shall be
actuarially sound so as to not be excessive, inadequate, or unfairly
discriminatory.  Rates shall be established based on the best
available scientific information for assessing the risk of earthquake
frequency, severity, and loss.  Rates shall be equivalent for
equivalent risks.  Factors the board shall consider in adopting rates
include, but are not limited to, the following:
   (1) Location of the insured property and its proximity to
earthquake faults and to other geological factors that affect the
risk of earthquake or damage from earthquake.
   (2) The soil type on which the insured dwelling is built.
   (3) Construction type and features of the insured dwelling.
   (4) Age of the insured dwelling.
   (5) The presence of earthquake hazard reduction factors, including
those set forth in subdivision (a) of Section 10089.2.
   (b) (1) If scientific information from geologists, seismologists,
or similar experts that assesses the frequency or severity of risk of
earthquake is considered in setting rates or in arriving at the
modeling assumptions upon which those rates are based, the
information may be used to establish differentials among risks only
if the information, assumptions, and methodology used are consistent
with the available geophysical data and the state of the art of
scientific knowledge within the scientific community.
   (2) Scientific information from geologists, seismologists, or
similar experts shall not be conclusive to support the establishment
of different rates between the most populous rating territories in
the northern and southern regions of the state unless that
information, as analyzed by experts such as the United States
Geological Survey, the California Division of Mines and Geology, and
experts in the scientific or academic community, clearly shows a
higher risk of earthquake frequency, severity, or loss between those
most populous rating territories to support those differences.
   (3) It is not the intent of the Legislature in adopting this
subdivision to mandate a uniform statewide flat rate for California
Earthquake Authority policies.
   (c) The classification system established by the board shall not
be adjusted or tempered in any way to provide rates lower than are
justified for classifications that present a high risk of loss or
higher than are justified for classifications that present a low risk
of loss.
   (d) Policyholders who have retrofitted their homes to withstand
earthquake shake damage according to standards and to the extent set
by the board shall enjoy a premium discount or credit of 5 percent on
the authority-issued policy of residential earthquake coverage.  For
residential dwellings, the 5-percent discount shall be applicable if
the dwelling, at a minimum, meets the following requirements:  the
dwelling was built prior to 1979, is tied to the foundation, has
cripple walls braced with plywood or its equivalent, and the water
heater is secured to the building frame.  For mobilehomes, the
5-percent discount shall be applicable if the mobilehome, at a
minimum, is reinforced by an earthquake resistant bracing system
certified by the Department of Housing and Community Development.
The board may approve a premium discount or credit above 5 percent,
as long as the discount or credit is determined actuarially sound by
the authority.
   (e) On or before July 1, 2000, the authority shall issue a report
to the Legislature on the current status of the Earthquake Loss
Mitigation Fund established by Section 10089.37, the residential
retrofit program authorized by Section 10089.38, and application of
the retrofit premium discount or credit established in subdivision
(d).  The report shall include a financial report on fund deposits,
income, and expenditures.  The report shall also include statistics
about the number of counties which are eligible for the retrofit
program, the number of homeowners who have applied for the program,
the number of retrofits which have been approved and completed, a
breakdown of the amount of authority funds and private funds which
have been expended in the program, the dollar amount of insurance
rate reductions which have been provided, and other information
concerning the status of the program.  The report shall also include
a copy of the plan for the expedited expansion of the residential
retrofit program required by subdivision (b) of Section 10089.39 and
any specifications for additional statutory authority or regulations
necessary for the implementation of the plan.
   (f) All rates shall be approved by the commissioner prior to their
use.
